WASHINGTON—A unique program from Georgetown University Alumni and Student Federal Credit Union aims to provide graduates with a high credit score that will in turn save them thousands of dollars in student loan refinance costs after they leave the university.
The program is expected to not only build strong ties with students while they attend Georgetown, but also help keep them in the fold once they move on to their careers, said CEO Sam Lazarus.
As CUToday.info reported, the $16-million GUASFCU has created the Georgetown University Credit Builder program. The agreement with Georgetown University provides GUASFCU with $35,000 annually to open share-secured Credit Builder loans and full-service checking and savings accounts for all incoming students—about 1,000—in the 2020-21 school year, and beyond.
“This is the first known instance of a university subsidizing the banking and credit building process for its students in the country,” said Lazarus.
The partnership will allow GUASFCU to provide a Credit Builder loan, a $10 savings account deposit, and a debit card to every incoming student free of any costs.
“The goal of the program is for every Georgetown University undergraduate to complete their course of study with not only a degree, but also a 685-plus FICO score,” said Lazarus.
Saving a ‘Great Deal of Money’
Lazarus explained students typically have little time or money to establish a banking relationship with a financial institution, let alone take out a loan that will help them build credit and establish a solid credit score when they graduate.
“What ends up happening is they graduate with tens of thousands of dollars of student loan debt they need to refinance, and with no credit score they have to pay a financial institution a high interest rate,” Lazarus said, adding tuition at Georgetown is among the highest in the nation. “That costs them a great deal of money.”
The Credit Builder program is a shared secured loan whose funds are frozen.
“Students can never access that $1,000 that we lend against their name,” said Lazarus. “The loan is automatically paid back every month on time through our own system,” he said.
GUASFCU has offered the Credit Builder loan for almost three years, making close to 300 annually. Lazarus explained researching the impact of the loans on the students who have taken out the product shows the typical result is a 685 or higher FICO at graduation.
University Sees Value
Lazarus told CUToday.info that data, and a pitch from the credit union to Georgetown University this year, led to a quick decision from the school to back the program.
“They agreed to the program immediately, because they see the value in it, both to the students and to the university,” he said.
Lazarus explained Georgetown can use the Credit Builder program as a marketing tool to prospective students, as it can demonstrate a strategy for saving graduates significant money. He said despite Georgetown University’s academic ranking, it lacks the significant endowment funds necessary to provide students with greater assistance.
“We also spoke with the university about the additional need for the program right now because of the pandemic and its impact on the economy,” he said. “We have found even the $35 fee we charge for the loan to be a barrier for many students. Plus, there is likely to be a credit squeeze on borrowers across the country and the younger borrowers will be the first affected.”
A Marketing Challenge
Promoting the loan, and the credit union, to students has become much more difficult due to the health crisis, pointed out Lazarus.
“No one is coming on campus,” he said. “Normally we would be out at university events with our table set up, handing out credit union T-shirts and literature.”
Instead, GUASFCU has been reaching out to new students via email, direct mail, social media and other channels.
“In the first three weeks this program has been rolled out, again with no students on campus, we're already approaching 10% enrollment,” said Lazarus, who noted the maximum number of the loans to be granted in a year, is 1,000. “So we've already had over 100 people enroll in the program even before the first day of class.”
The Number-One Challenge
Lazarus said in addition to helping students, the loan is intended to boost membership and keep students at the credit union after they graduate.
“The number-one issue we face is churn,” said Lazarus, who at age 22 will graduate from Georgetown this year and leave his volunteer CEO role. “We see this as a way of increasing member loyalty and longevity. We hope this program will be the start of a lifelong relationship with our credit union.”